The approval comes a day after Israel threatened to cut off power to Gaza, a move condemned by human rights groups.
But in a sign of growing friction over the cross-border violence, Palestinian security forces said they had refused an Israeli request to evacuate the area.
The makeshift rockets rarely cause casualties, but could have big political fallout as Ariel Sharon, the Israeli prime minister, campaigns for re-election.
Sharon's campaign relies on the strength of a withdrawal from Gaza this year that he said would improve Israel's security.
Despite the withdrawal, the rocket firing has not stopped, and Israel has mounted air and artillery strikes on Gaza.
Fighters say the rockets are to avenge Israeli raids in the occupied West Bank as well as its strikes into the Gaza Strip.
On Thursday, four Israeli soldiers were wounded when a rocket hit their base after Israeli troops killed three fighters in the West Bank. One rocket fell on Friday.
Mofaz has ordered restricted
movement in the West Bank
Shaul Mofaz, the defence minister, "has ordered a restriction of movement in those areas from which the Palestinian terrorist organisations fire rockets into Israel", his office said.
Another security source said that this meant use of air power, not ground operations.
But Palestinian forces said they had refused an Israeli request to evacuate the border zone and were continuing their own efforts to prevent rocket firing from the rubble of former Jewish settlements at the border.
Al-Sayid Shaban, commander of forces in northern Gaza, said: "We will not move one inch. We are [also] making a 100% effort to prevent rocket firing."
The cross-border violence has quickly soured any hopes that the Gaza pullout could lead to a quick return to peacemaking.
Israel rules out any talks on statehood in the West Bank and Gaza until the Palestinian authorities disarm fighters, a process that is meant to start under a US-backed peace plan.
Israeli security sources said further steps were being considered if the rocket fire did not stop. These include cutting off Gaza's electricity - a proposal denounced by human rights groups as collective punishment.
A ground offensive to reoccupy parts of Gaza is unlikely unless rockets cause heavy casualties, the sources said.
The stakes are particularly high for Sharon ahead of the election on 28 March, for which the ex-general quit his right-wing Likud party to move towards the political centre.
Opinion polls suggest that his Kadima party has a big lead.
Polls suggest that Sharon's
Kadima party is in the lead
But more attacks, particularly from Gaza, could strengthen the hand of his main challenger from the right, Benjamin Netanyahu, the Likud member who denounced the Gaza pullout as a surrender to Palestinian fighters that would only encourage attacks.
A surge in violence could also create problems for a Palestinian parliamentary election on 25 January, and potentially force a delay.
Abu Abir, of the Popular Resistance Committees, said: "We will not tremble from these threats." Fighters said they would keep up the barrages whatever Israel did.